(Bloomberg) -- Australian winemakers including Treasury Wine Estates Ltd. stand to benefit from a US-China trade war, which could cause demand for the beverage from other countries of origin to drop, according to Chief Executive Officer Tim Ford.
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“We actually see some of the protectionist policy and tariffs that are likely to be put in place — if you believe that’s going to happen — as a net positive for us as an organization,” he said in an interview with Bloomberg Television on Thursday. Both the US and China are major markets for the vintner and tit-for-tat tariffs would allow it to fulfill any shortfall in either country, he said.
Shares of Australia’s largest listed winemaker fell as much as 9% on Thursday after the company flagged that profitability of its low-cost wines dropped almost 50% in the six months through December.
Treasury reported a 35% increase in pre-tax earnings to A$391.4 million ($246 million) for the first half of its financial year, but said soft demand for its cheaper brands remains a drag on overall profits. The company said it expects full-year earnings at the lower end of its previous guidance at A$780 million.
Australia’s billion-dollar wine industry is on the mend from years of Chinese tariffs, which exacerbated an acute glut of the alcoholic beverage fueled by falling demand amid lackluster economic conditions and changing drinking patterns.
“Consumers all around the world are drinking less but drinking higher priced wines,” Ford said, adding he expects the glut in cheap Australian wine to normalize over time.
Treasury, which is best known for its flagship brand, Penfolds, said it would not pursue a divestment of its commercial portfolio due to a lack of good offers. The commercial portfolio includes bottles costing A$10 or less from brands like Wolf Blass and Blossom Hill.
“We will continue to trade those brands,” Ford said, but added they “won’t be a growth engine” moving forward.
The decision not to divest may be a drag on group earnings for some time, said $Citigroup Inc(C-N)$. analyst Sam Teeger in a research note.
Treasury had been trying to sell the commercial portfolio since August, as it it continues to establish itself more firmly as a luxury brand. High-end portfolio growth in Penfolds was strong, and momentum continued in the Australian Country of Origin portfolio in China and other key Asian markets, the company said.
(Updates throughout, including comments from Treasury CEO Tim Ford.)
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